Should You Be Paying Tax on Your Side Hustle? Avoid Any Nasty Surprises
Should You Be Paying Tax on Your Side Hustle? Avoid Any Nasty Surprises
Conventional work and income streams are changing, and with the rising cost of living, many people are turning to side hustles to make extra cash. If you’re one of them, you might be wondering whether you need to pay tax on those earnings.
To help clear up any confusion, HM Revenue & Customs (HMRC) has launched a new campaign aimed at making it easier to understand when you need to report side hustle earnings. The guidance covers five different types of side hustles—let’s take a closer look at what you need to know.
1. Buying or Making Things to Sell
If you sell handmade items (including digital creative products), refurbish and resell furniture, or buy products to sell at a higher price, HMRC considers you to be trading.
2. Having a Side Gig
A side gig could involve services such as car repairs, delivery driving, dog walking, gardening, or tutoring. Even if you do this work in your spare time, if it’s regular and ongoing, HMRC will classify you as trading.
3. Working for Yourself in Multiple Jobs
If you earn money from multiple sources, such as freelancing alongside a regular job, you might need to register as a sole trader. This applies if your income from these jobs exceeds the tax-free threshold.
4. Being a Content Creator or Influencer
If your hobby has turned into an income stream—such as earning money from sponsored posts, ad revenue on YouTube, or monetized blogs—HMRC considers you to be trading.
5. Renting Out Property
Whether you rent out a spare room, a holiday let, or an entire property, you may need to declare this income. There are specific allowances:
- The Rent a Room Scheme allows you to earn up to £7,500 tax-free if you rent out a furnished room in your home.
- The Property Allowance lets you earn up to £1,000 from property rental before paying tax.
- These allowances can be used alongside the £1,000 trading allowance, but not for the same income.
How Much Can You Earn Before Paying Tax?
If your total trading income is £1,000 or less in a tax year, you don’t need to report it. However, if you earn more than £1,000, you must inform HMRC and may need to pay tax.
Common Misconceptions
Some believe that selling fewer than 30 items per year means you don’t have to pay tax—this is incorrect. Online platforms are required to share sales data with HMRC if you exceed 30 transactions, but tax liability depends on your total income, not just the number of items sold.
If you occasionally sell personal belongings, such as unwanted clothes or furniture, this is typically not considered trading and won’t be taxable.
Need Help?
If you’re unsure whether you need to pay tax on your side hustle, contact us today. We’d be happy to help you navigate the rules and avoid any unexpected tax bills!
